Prof. C. K. Prahalad might have been instrumental in challenging convention and initiating very relevant debates, but Prahalad’s theories weren’t exactly conclusive in themselves with respect to the logic they purported... B&E presents a review of why and where Prahalad got it wrong by Virat Bahri
It obviously didn’t come easy – accepting the fact that the meeting I had had with Prof. C. K. Prahalad just a few months back in India was going to be the very last. He had then talked at length on how MNCs entering India were tapping the market better than Indian companies and how he hoped for an India where we would world class in every way. As we were talking, a student doing his post graduation in computer science came up & asked how he (the student) could be world class. Prahalad’s reply was, “Have you contemplated doing a Ph.D.?” On receiving a negative reply, he said, “That’s what I mean by world class.”
That reply consolidated how the most respected Prahalad, perhaps to his biggest disadvantage, summarised solutions in templates that could have been dismissed as being too simplistic, were it not for him being the proponent. Prof. Prahalad’s most popular perspectives – Core Competence and Fortune at the Bottom of the Pyramid – will undoubtedly be the ones the world will remember him most for, and would also be the ones most criticised for glaring structural fallacies, most to do with being based on subjective commentaries rather than on quantitative evidence.
The Core Competence theory (by Gary Hamel and C. K. Prahalad) elucidated – with theoretical surveys – that a successful corporation is one that can develop its range of businesses based on a few ‘core competencies’ rather than having diverse SBUs. Amidst numerous counter arguments, the BCG report titled ‘Managing for value: How the world’s top diversified companies produce superior shareholder returns” (by Dieter Heuskel, Achim Fechtel and Philip Beckmann) was arguably the strongest, to the extent that it devastated the competence proposition ruthlessly.
BCG’s comprehensive report was based on a 1996-2005 research of 300 diversified, slightly diversified and focused companies. While they mentioned that 52% of diversified companies beat the stock market average based on Relative Total Shareholder Return (RTSR), the important factor was that their average RTSR was also higher than that of focused firms that beat the stock market average. Better, they showed that a majority of focused companies could not beat the average shareholder returns provided by diversified firms. The report concluded that there is no correlation between diversification and performance.
It obviously didn’t come easy – accepting the fact that the meeting I had had with Prof. C. K. Prahalad just a few months back in India was going to be the very last. He had then talked at length on how MNCs entering India were tapping the market better than Indian companies and how he hoped for an India where we would world class in every way. As we were talking, a student doing his post graduation in computer science came up & asked how he (the student) could be world class. Prahalad’s reply was, “Have you contemplated doing a Ph.D.?” On receiving a negative reply, he said, “That’s what I mean by world class.”
That reply consolidated how the most respected Prahalad, perhaps to his biggest disadvantage, summarised solutions in templates that could have been dismissed as being too simplistic, were it not for him being the proponent. Prof. Prahalad’s most popular perspectives – Core Competence and Fortune at the Bottom of the Pyramid – will undoubtedly be the ones the world will remember him most for, and would also be the ones most criticised for glaring structural fallacies, most to do with being based on subjective commentaries rather than on quantitative evidence.
The Core Competence theory (by Gary Hamel and C. K. Prahalad) elucidated – with theoretical surveys – that a successful corporation is one that can develop its range of businesses based on a few ‘core competencies’ rather than having diverse SBUs. Amidst numerous counter arguments, the BCG report titled ‘Managing for value: How the world’s top diversified companies produce superior shareholder returns” (by Dieter Heuskel, Achim Fechtel and Philip Beckmann) was arguably the strongest, to the extent that it devastated the competence proposition ruthlessly.
BCG’s comprehensive report was based on a 1996-2005 research of 300 diversified, slightly diversified and focused companies. While they mentioned that 52% of diversified companies beat the stock market average based on Relative Total Shareholder Return (RTSR), the important factor was that their average RTSR was also higher than that of focused firms that beat the stock market average. Better, they showed that a majority of focused companies could not beat the average shareholder returns provided by diversified firms. The report concluded that there is no correlation between diversification and performance.
For more articles, Click on IIPM Article.
Source : IIPM Editorial, 2010.
An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
“We will change your outlook” - The Sunday Indian on B-SCHOOL RANKING SCAMSTERS EXPOSED! A must read...
The Sunday Indian:-
B-SCHOOL RANKING SCAMSTERS EXPOSED!
For Exclusive Footage by Sunday Indian Click Here
Outlook Magazine's B School Ranking Scam Exposed
Business Standard Exposes the Outlook Magazine Money Editor
Don't trust the Indian Media!
IIPM enters into media education
IIPM makes record 10,000 placements in five years
TSI exposes b school ranking scamsters Mahesh Peri of Career 360 and Premchand Palety of C fore. - For Complete Sting Operation Video Click Here
Pioneer Exposes the fraud called Mahesh Sharma and Mahesh Peri of Career 360 and Barbel Schwertfeger of mba-channel.com
IIPM: An intriguing story of growth and envy
Prof Arindam Chaudhuri of IIPM on MF HUSAIN
